[Federal Register Volume 68, Number 86 (Monday, May 5, 2003)]
[Proposed Rules]
[Pages 23640-23646]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-10841]


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DEPARTMENT OF THE TREASURY

31 CFR Part 103

RIN 1506-AA28


Financial Crimes Enforcement Network; Anti-Money Laundering 
Programs for Commodity Trading Advisors

AGENCY: Financial Crimes Enforcement Network (FinCEN), Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: FinCEN is issuing this proposed rule to prescribe minimum 
standards applicable to certain commodity trading advisors pursuant to 
the revised provision in the Bank Secrecy Act that requires financial 
institutions to establish anti-money laundering programs and to 
delegate its authority to examine such commodity trading advisors to 
the Commodity Futures Trading Commission.

DATES: Written comments may be submitted to FinCEN on or before July 7, 
2003.

ADDRESSES: Commenters are encouraged to submit comments by electronic 
mail because paper mail in the Washington area may be delayed. Comments 
submitted by electronic mail may be sent to 
[email protected] with the caption in the body of the text, 
``Attention: Section 352 CTA Regulations.'' Comments may also be 
submitted by paper mail to FinCEN, P.O. Box 39, Vienna, VA 22183, Attn: 
Section 352 CTA Regulations. Comments should be sent by one method 
only. Comments may be inspected at FinCEN between 10 a.m. and 4 p.m. in 
the FinCEN Reading Room in Washington, DC. Persons wishing to inspect 
the comments submitted must request an appointment by telephoning (202) 
354-6400 (not a toll-free number).

FOR FURTHER INFORMATION CONTACT: Office of Chief Counsel (FinCEN), 
(703)

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905-3590; Office of the Assistant General Counsel for Banking & Finance 
(Treasury), (202) 622-0480; or Office of the General Counsel 
(Treasury), (202) 622-1927 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

I. Background

    On October 26, 2001, the President signed into law the Uniting and 
Strengthening America by Providing Appropriate Tools Required to 
Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001 (Pub. L. 
107-56) (the Act). Title III of the Act makes a number of amendments to 
the anti-money laundering provisions of the Bank Secrecy Act (BSA), 
which are codified in subchapter II of chapter 53 of title 31, United 
States Code. These amendments are intended to promote the prevention, 
detection, and prosecution of international money laundering and the 
financing of terrorism.
    Section 352(a) of the Act, which became effective on April 24, 
2002, amended section 5318(h) of the BSA. As amended, section 
5318(h)(1) requires every financial institution to establish an anti-
money laundering program that includes, at a minimum: (i) The 
development of internal policies, procedures, and controls; (ii) the 
designation of a compliance officer; (iii) an ongoing employee training 
program; and (iv) an independent audit function to test programs. 
Section 5318(h)(2) authorizes the Secretary of the Treasury 
(Secretary), after consulting with the appropriate Federal functional 
regulator,\1\ to prescribe minimum standards for anti-money laundering 
programs, and to exempt from the application of those standards any 
financial institution that is not subject to BSA regulation.
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    \1\ The Federal functional regulator for commodity trading 
advisors is the Commodity Futures Trading Commission (CFTC).
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    Commodity trading advisors (CTAs) that are registered or required 
to register with the CFTC are defined as ``financial institutions'' 
under the BSA.\2\ CTAs, as well as futures commission merchants and 
commodity pool operators (CPOs), which are also CFTC registrants, were 
added to the statutory definition of ``financial institution'' by the 
Act,\3\ and thus are subject to the BSA's anti-money laundering program 
requirements. Previously, Treasury and FinCEN temporarily exempted 
certain financial institutions, including CTAs and CPOs, from the 
requirement that they establish anti-money laundering programs.\4\ In 
addition, FinCEN has issued interim final rules for numerous types of 
financial institutions \5\ and proposed rules for other financial 
institutions,\6\ and is studying how to design such standards for 
numerous other types of financial institutions.
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    \2\ 31 U.S.C. 5312(c).
    \3\ Section 321(b).
    \4\ See 31 CFR 103.170, 67 FR 67547 (Nov. 6, 2002).
    \5\ Anti-Money Laundering Programs for Financial Institutions, 
67 FR 21110 (April 29, 2002); Anti-Money Laundering Programs for 
Mutual Funds, 67 FR 21117 (April 29, 2002); Anti-Money Laundering 
Programs for Money Services Businesses, 67 FR 21114 (April 29, 
2002); Anti-Money Laundering Programs for Operators of a Credit Card 
System, 67 FR 21121 (April 29, 2002).
    \6\ Anti-Money Laundering Programs for Unregistered Investment 
Companies, 67 FR 60617 (Sept. 26, 2002); Anti-Money Laundering 
Programs for Insurance Companies, 67 FR 60625 (Sept. 26, 2002); 
Anti-Money Laundering Programs for Dealers in Precious Metals, 
Stones, or Jewels, 68 FR 8480 (Feb. 21, 2003).
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    FinCEN, in this proposed rule, identifies and defines those CTAs 
that will be subject to the requirement that financial institutions 
have anti-money laundering programs, and sets forth minimum 
requirements for an anti-money laundering program for these entities 
that are based on the minimum standards set forth in BSA section 
5318(h)(1).
    FinCEN also is proposing today a similar rule for investment 
advisers, which is published elsewhere in this issue of the Federal 
Register.

II. Money Laundering and Commodity Trading Advisors

    Money laundering occurs when money from illegal activity is moved 
through the financial system in such a way as to make it appear that 
the funds came from legitimate sources. Money laundering usually 
involves three stages: the placement, layering, and integration stages. 
In the placement stage, cash or cash equivalents are placed into the 
financial system. In the layering stage, the money is transferred or 
moved to other accounts through a series of financial transactions 
designed to obscure the origin of the money. Finally, in the 
integration stage, the funds are reintroduced into the economy so that 
the funds appear to have come from legitimate sources. The crime of 
money laundering also encompasses the movement of funds to support 
terrorism or terrorist organizations.\7\ These funds may be from 
illegitimate or legitimate sources. Even where the funds derive from 
legitimate sources, their movement may follow the money laundering 
pattern described above in order to disguise the identity of the 
originator of the funds.
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    \7\ 18 U.S.C. 1956, 2339A and 2339B.
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    Commodity futures and options accounts are vehicles that could be 
used to launder illicit funds. CTAs who direct such accounts are in a 
unique position to observe activity that may be indicative of money 
laundering. As such, they need to be aware of what types of activity 
may indicate potential money laundering or terrorist financing and 
implement a compliance program designed, among other things, to deter 
and detect such activity.\8\
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    \8\ 18 U.S.C. 1956 and 1957 make it a crime for any person, 
including an individual or company, to engage knowingly in a 
financial transaction with the proceeds from any of a long list of 
crimes or ``specified unlawful activity.'' Although the standard of 
knowledge required is ``actual knowledge,'' actual knowledge 
includes ``willful blindness.'' Thus, a person could be deemed to 
have knowledge that proceeds were derived from illegal activity if 
he or she ignored ``red flags'' that indicated illegality.
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III. Section-by-Section Analysis

A. Definition of Commodity Trading Advisor

    Section 103.133(a)(1) of the proposed rule defines ``commodity 
trading advisor'' as any person registered or required to be registered 
with the CFTC as a CTA under the Commodity Exchange Act (CEA)\9\ and 
that directs client commodity futures or options accounts. Section 
103.133(a)(2) defines ``directs'' in this context based upon the 
definition of ``direct'' in the CFTC's regulations.\10\
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    \9\ 7 U.S.C. 1 et seq.
    \10\ CFTC Rule 4.10(f), 17 CFR 4.10(f), provides that the term 
``direct'' refers to ``agreements whereby a person is authorized to 
cause transactions to be effected for a client's commodity interest 
account without the client's specific authorization.'' CFTC Rule 
4.10(a), 17 CFR 4.10(a), defines ``commodity interest'' as ``(1) any 
contract for the purchase or sale of a commodity for future 
delivery; and (2) any contract, agreement or transaction subject to 
[CFTC] regulation under section 4c or 19 of the [CEA].''
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    The CEA defines a CTA generally as any person who, for compensation 
or profit, engages in the business of advising others, either directly 
or indirectly, as to the value or advisability of trading futures 
contracts or commodity options authorized under the CEA, or issues 
analyses or reports concerning trading futures or commodity 
options.\11\ CTAs are required to register with the CFTC,\12\ although 
there are a limited number of

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exemptions.\13\ One important exemption is for persons who neither 
direct client accounts nor provide commodity trading advice tailored to 
the commodity interest or cash market positions or other circumstances 
or characteristics of particular clients.\14\ This exemption includes, 
among other categories, persons who publish newsletters, maintain non-
customized Internet web sites, and create non-customized computer 
software.\15\ Although these persons are exempt from registration, 
according to the NFA, a small number of them have opted to register 
with the CFTC. Nonetheless, even if they are registered, FinCEN 
believes it is appropriate to exclude these persons from the scope of 
this proposed anti-money laundering program rule, because they do not 
direct client accounts and thus, in light of their lack of information 
about particular clients, they are in no position to observe activity 
that may indicate the presence of money laundering or terrorist 
financing.
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    \11\ The CEA defines the term ``commodity trading advisor'' as 
``any person who * * * for compensation or profit, engages in the 
business of advising others, either directly or through 
publications, writings, or electronic media, as to the value of or 
the advisability of trading in'' futures or commodity options, or 
who ``for compensation or profit, and as part of a regular business, 
issues or promulgates analyses or reports'' concerning trading in 
futures or commodity options. 7 U.S.C. 1a(6).
    \12\ 7 U.S.C. 6m. According to the National Futures Association 
(NFA), the self-regulatory organization for the futures industry, as 
of January 31, 2003 there were 2,734 CTAs registered with the CFTC.
    \13\ See Section 4m of the CEA, 7 U.S.C. 6m, and CFTC Rule 
4.14(a), 17 CFR 4.14(a). These provisions exempt from the 
registration requirement a number of persons who meet the definition 
of CTA. For example, section 4m(3) of the CEA, 7 U.S.C. 6m(3), 
exempts from the registration requirement persons who are registered 
as investment advisers with the Securities and Exchange Commission 
and whose business does not consist primarily of acting as a CTA and 
who do not act as a CTA to an entity that is primarily engaged in 
trading commodity interests. Another example is CFTC Rule 4.14(a), 
which exempts from registration, among other entities, certain 
persons who are registered with the CFTC in other capacities. Any 
person who is not registered as a CTA by virtue of 7 U.S.C. 6m or 
CFTC Rule 4.14(a) is not a ``financial institution'' pursuant to 
section 5312 of the BSA and is excluded from the scope of this 
proposed rule. It should be noted that some of these exempt persons 
may have anti-money laundering obligations due to their registration 
in another capacity.
    \14\ See CFTC Rule 4.14(a)(9), 17 CFR 4.14(a)(9).
    \15\ The CFTC has determined to minimize the regulatory impact 
on speech, other than deceptive or misleading speech. For this 
reason, the CFTC exempts from registration those persons who meet 
the definition of CTA, but whose advice to clients is limited to 
non-customized communications, such as newsletters or Internet web 
sites, and who do not direct client accounts. 65 FR 12938 (March 10, 
2000).
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    Although CTAs that provide commodity trading advice tailored to the 
commodity interest or cash market positions or other circumstances or 
characteristics of particular clients are not covered by this 
exemption, FinCEN has determined to exclude them as well, so that only 
those CTAs that direct client accounts will be subject to the proposed 
rule.\16\ This is because a CTA that only provides commodity trading 
advice, without directing the account, is not in a position to actually 
observe potentially suspicious activity; indeed, a CTA whose service is 
limited to providing trading advice may not even know whether the 
client actually follows that advice.\17\ Only CTAs that direct accounts 
are in a position to observe potential money laundering or terrorist 
financing activity.
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    \16\ The NFA estimates that approximately one quarter of all 
registered CTAs direct client accounts.
    \17\ It should be noted that futures commission merchants are 
not required to furnish account statements to CTAs that merely 
provide trading advice to clients and do not direct their accounts. 
Compare CFTC Rule 1.33(d), 17 CFR 1.33(d).
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    In some instances, CTAs that would be subject to the proposed rule 
advise pooled investment vehicles that are themselves required to 
maintain anti-money laundering programs under BSA rules,\18\ such as 
unregistered investment companies, or that are sponsored or 
administered by financial institutions subject to such 
requirements.\19\ To prevent overlap and redundancy, the proposed rule 
would permit CTAs covered by the rule to exclude from their anti-money 
laundering programs any investment vehicle they advise that is subject 
to an anti-money laundering program requirement under BSA rules.
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    \18\ CTAs advise commodity pools as well as individual 
customers. A ``pool'' is defined in CFTC Rule 4.10 as ``any 
investment trust, syndicate or similar form of enterprise operated 
for the purpose of trading commodity interests.'' 17 CFR 4.10(d)(1).
    \19\ For example, a CTA may act as advisor to other investment 
vehicles, such as certain unregistered investment companies or an 
insurance company's separate accounts, that will be subject to anti-
money laundering program rules under pending FinCEN proposals. See, 
e.g., Anti-Money Laundering Programs for Unregistered Investment 
Companies, 67 FR 60617 (Sept. 26, 2002); Anti-Money Laundering 
Programs for Insurance Companies, 67 FR 60625 (Sept. 26, 2002).
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B. The Anti-Money Laundering Program

1. Individualized Program
    Section 103.133(b) of the proposed rule would require each CTA 
subject to the proposed rule to develop and implement a program 
reasonably designed to prevent the CTA from being used for money 
laundering or terrorist financing, and to achieve and monitor 
compliance with other applicable requirements of the BSA and FinCEN's 
implementing regulations. The legislative history of the Act explains 
that the requirement to have an anti-money laundering program is not a 
one-size-fits-all requirement. The general nature of the requirement 
reflects Congress' intent that each financial institution should have 
the flexibility to tailor its program to fit its business, taking into 
account factors such as its size, location, activities, and risks or 
vulnerabilities to money laundering. This flexibility is designed to 
ensure that all financial institutions subject to the Act, from the 
largest to the smallest, have in place policies and procedures 
appropriate to monitor for anti-money laundering compliance.\20\
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    \20\ See USA PATRIOT Act of 2001: Consideration of H.R. 3162 
Before the Senate (October 25, 2001) (statement of Sen. Sarbanes), 
147 Cong. Rec. S10990-02; Financial Anti-Terrorism Act of 2001: 
Consideration Under Suspension of Rules of H.R. 3004 Before the 
House of Representatives (October 17, 2001) (statement of Rep. 
Kelly) (provisions of the Financial Anti-Terrorism Act of 2001 were 
incorporated as Title III in the Act), 147 Cong. Rec. H6924-01.
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    The proposed rule is designed to give CTAs flexibility to tailor 
their programs to their specific circumstances so long as the minimum 
requirements are met. For example, a CTA that directs a wide variety of 
commodity interest trading accounts may require more extensive 
oversight by its compliance officer than would a CTA that directs a 
smaller number of individual accounts. The former also would require 
more frequent independent review. Similarly, the educational component 
of the program should be tailored towards the size of the CTA, the type 
of trading or investing, and the identities of the CTA's clients.
    To assure that the requirement to have an anti-money laundering 
program receives the highest level of attention, the proposed rule 
would require that each CTA's program be approved in writing by the 
board of directors or trustees, or if it doesn't have one, by its sole 
proprietor, general partner, or other persons who have similar 
functions.\21\ The four required elements of the anti-money laundering 
program are discussed below.
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    \21\ The board's approval could be given at its first regularly 
scheduled meeting after the program is adopted.
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2. The Four Required Elements of Each Anti-Money Laundering Program
    (1) Establish and Implement Policies, Procedures, and Internal 
Controls Reasonably Designed To Prevent the CTA From Being Used To 
Launder Money or Finance Terrorist Activities, Including But Not 
Limited To Achieving Compliance With the Applicable Provisions of the 
BSA and FinCEN's Implementing Regulations
    Each CTA subject to the proposed rule would be required to develop 
a written program reasonably designed to prevent it from being used to 
launder money or finance terrorist activities and to achieve compliance 
with applicable requirements of the BSA and FinCEN's implementing 
regulations. As described below, this would require each CTA to review 
the types of services it provides and the nature of its clients to 
identify its vulnerabilities to money laundering

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and terrorist financing activity. The CTA would then develop and 
implement procedures and controls that would reasonably address each 
vulnerability and assure compliance with these requirements, and 
periodically assess the effectiveness of its procedures and controls.
    A CTA's vulnerabilities to money laundering and terrorist financing 
activity are minimal with respect to clients for whom the CTA does not 
direct accounts. CTAs that direct accounts for some clients may have 
other clients for whom the CTA provides very different services, such 
as trading advice, newsletters or research reports. Accordingly, a CTA 
could exclude from its anti-money laundering program clients for whom 
it does not direct accounts.
    CTAs face higher vulnerability to money laundering when clients 
place their assets with a futures commission merchant and the funds are 
directed by the CTA. A CTA's procedures for these clients, for example, 
would seek to identify unusual transactions whereby clients deposit 
checks drawn on (or wire transfers made from) accounts of third parties 
with no family or business relation to the client, or through numerous 
checks or transfers from one or more issuers or institutions. In 
addition, a CTA's procedures would identify unusual transactions, such 
as those involving the subsequent withdrawal of assets from the futures 
commission merchant through transfers to unrelated or numerous 
accounts, or to accounts in countries in which drugs are known to be 
produced or other countries at high-risk for money laundering or 
terrorist financing.\22\
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    \22\ See, e.g., http://www.state.gov for International Narcotics 
Control Reports listing states that are sponsors of terrorism or 
have narcotics problems, and http://www.fincen.gov for FinCEN 
Advisories identifying countries whose anti-money laundering regimes 
do not meet international standards.
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    A CTA's vulnerability to money laundering may rise further with 
respect to clients who make frequent additions to or withdrawals from 
their accounts held with futures commission merchants. A CTA would need 
to establish procedures to identify which clients engage in such 
activity and assess the reasonableness of the additions or withdrawals 
in light of the clients' investment objectives and the CTA's existing 
knowledge of the clients' personal finances or business operations.
    A CTA faces the highest degree of vulnerability in the event that 
clients deposit or attempt to deposit assets in their accounts at 
futures commission merchants in the form of cash. Similar vulnerability 
exists if the client establishes custodial arrangements that allow the 
client to remain anonymous to other intermediaries. The CTA would need 
to establish procedures to assess whether there are legitimate 
circumstances underlying the client's request before proceeding with 
the relationship.
    A CTA's program should take into account the extent to which it 
provides trading advice to pooled investment vehicles. As discussed 
above, CTAs to pooled investment vehicles that are subject to anti-
money laundering program requirements under BSA rules may exclude the 
vehicles from their anti-money laundering programs. However, a CTA must 
include other pooled vehicles it advises in its anti-money laundering 
program.
    CTAs providing advice to pooled investment vehicles that are not 
subject to BSA anti-money laundering program requirements and that are 
created and administered by a third party,\23\ would have little or no 
information about the investors in the pooled vehicle or their 
transactions. In this situation, the CTA would need to establish 
procedures to assess whether the entity that administers the vehicle, 
or the nature of the vehicle itself, reduces the risk of money 
laundering. For example, an employee retirement savings plan sponsored 
by a public corporation that accepts assets only in the form of payroll 
deductions or rollovers from other similar plans presents no realistic 
opportunity for money laundering activity, whereas an offshore vehicle 
not itself subject to any anti-money laundering program requirement 
would present a more significant risk. The CTA's program would need to 
analyze the money laundering risks posed by a particular investment 
vehicle by using a risk-based evaluation of relevant factors including: 
the type of entity; its location; the statutory and regulatory regime 
of that location (e.g., if the entity is organized or registered in a 
foreign jurisdiction, does the jurisdiction comply with the European 
Union anti-money laundering directives, and has the jurisdiction been 
identified by the Financial Action Task Force as non-cooperative); and 
the CTA's historical experience with the entity or the references of 
other financial institutions. As the entity's potential vulnerability 
to money laundering increases, the CTA's procedures would need to 
reasonably address these increased risks, such as by obtaining and 
reviewing information about the identity and transactions of the 
investors in the vehicle.
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    \23\ FinCEN understands that CTAs (acting in their capacity as a 
CTA) do not create or administer pooled investment vehicles, so that 
all CTAs advising pooled vehicles that are not subject to an anti-
money laundering program requirement would fall within this 
description.
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    FinCEN recognizes that some elements of a CTA's anti-money 
laundering program may best be performed by personnel of these separate 
entities, such as futures commission merchants. It is permissible for a 
CTA to delegate contractually appropriate parts of the implementation 
and operation of its anti-money laundering program to another 
affiliated or unaffiliated entity. However, the CTA would remain 
responsible for the effectiveness of the program, as well as ensuring 
that federal examiners are able to obtain information and records 
relating to the anti-money laundering program and to inspect the third 
party for purposes of the program. Accordingly, the CTA would still be 
required to identify the particular procedures appropriate to address 
its vulnerability to money laundering and terrorist financing, and then 
undertake reasonable steps to assess whether the third party would 
carry out such procedures effectively. For example, it would not be 
sufficient simply to obtain a certification from the third party that 
it ``has a satisfactory anti-money laundering program.''
    Certain CTAs also may be registered in other capacities, including 
as futures commission merchants or introducing brokers. These CTAs may 
already have anti-money laundering programs in place.\24\ FinCEN does 
not require that such CTA's establish multiple anti-money laundering 
programs. The same program may apply to an entity that functions as 
more than one type of financial institution, so long as the program is 
appropriately designed to address the different risks posed by the 
different aspects of the entity's business and satisfies each of the 
anti-money laundering program requirements to which it is subject in 
each of its capacities.
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    \24\ Previously, the NFA issued a rule for its futures 
commission merchant members and introducing broker members, 
requiring them to implement anti-money laundering programs. NFA Rule 
2-9(c).
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    Policies, procedures, and internal controls also should be 
reasonably designed to assure compliance with BSA requirements. The BSA 
currently requires CTAs to report on Form 8300 the receipt of cash or 
certain non-cash instruments totaling more than $10,000 in one 
transaction or two or more related transactions.\25\ In order to

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develop a compliant anti-money laundering program, the program should 
be reasonably designed to detect and report not only transactions 
required to be reported on Form 8300, but also to detect activity 
designed to evade such requirements. Such activity, commonly known as 
``structuring,'' may involve making deposits into a trading or 
investment account of $10,000 or more with multiple money orders, 
travelers' checks, or cashier's checks or other bank checks, each with 
a face amount of less than $10,000. Such methods of payment may be 
indicative of money laundering, particularly when the payment 
instruments were obtained from different sources or the payments were 
made at different times on the same day or on consecutive days or close 
in time.
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    \25\ See 31 CFR 103.30. It should be noted, however, that CFTC 
Rule 4.30, 17 CFR 4.30, prohibits a CTA that is not also a futures 
commission merchant, from receiving any funds, securities, or 
property from clients in the CTA's name. The Form 8300 requirement 
thus applies where the CTA transmits non-cash instruments such as 
cashier's checks made payable to the Futures Commission merchant for 
deposit into a client's account.
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    FinCEN is currently considering whether CTAs should be subject to 
additional BSA requirements, including filing suspicious activity 
reports pursuant to section 5318(g) of the BSA and complying with 
accountholder identification and verification procedures pursuant to 
section 326 of the Act. If CTAs become subject to additional 
requirements, they will need to update their compliance programs to 
include appropriate procedures, training, and testing functions.
    (2) Provide for Independent Testing for Compliance To Be Conducted 
by Company Personnel or by a Qualified Outside Party.
    It is necessary that a CTA provide for periodic testing of its 
anti-money laundering program in order to assure that the program is 
functioning as designed. The testing should be conducted by personnel 
knowledgeable regarding applicable BSA requirements. The testing may be 
accomplished by employees of the CTA, its affiliates, or unaffiliated 
service providers, so long as those same employees are not designated 
to implement and monitor the program under requirement (3) below. The 
frequency of such a review would depend upon factors such as the size 
and complexity of the CTA's business and the extent to which its 
business model may be subject to a higher risk of money laundering than 
other business models. A written assessment or report should be a part 
of the review, and any recommendations resulting from such review 
should be promptly addressed.
    (3) Designate a Person or Persons Responsible for Implementing and 
Monitoring the Operations and Internal Controls of the Program.
    The CTA must charge a person (or group of persons) with the 
responsibility for overseeing the anti-money laundering program. The 
person or group of persons should be competent and knowledgeable 
regarding applicable BSA requirements and money laundering risks, and 
empowered with full responsibility and authority to develop and enforce 
appropriate policies and procedures. Whether the person or group of 
persons is dedicated full time to BSA compliance would depend upon the 
size and complexity of the CTA's business. In addition, a person 
responsible for the overall supervision of the program should be an 
officer of the CTA.
    (4) Provide Ongoing Training for Appropriate Persons.
    Employee training is an integral part of any anti-money laundering 
program. Employees of the CTA must be trained in BSA requirements 
relevant to their functions and in recognizing possible signs of money 
laundering that could arise in the course of their duties, so that they 
can carry out their responsibilities effectively. Such training could 
be conducted by outside or in-house seminars, and could include 
computer-based training. The level, frequency, and focus of the 
training would be determined by the responsibilities of the employees 
and the extent to which their functions bring them in contact with BSA 
requirements or possible money laundering activity. Consequently, the 
training program should provide both a general awareness of overall BSA 
requirements and money laundering issues, as well as more job-specific 
guidance regarding particular employees' roles and functions in the 
anti-money laundering program.\26\ For those employees whose duties 
bring them in contact with BSA requirements or possible money 
laundering activity, the requisite training should occur when the 
employee assumes those duties. Moreover, these employees should receive 
periodic updates and refreshers regarding the anti-money laundering 
program.
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    \26\ Appropriate topics for an anti-money laundering program 
include, but are not limited to: BSA requirements, a description of 
money laundering, how money laundering is carried out, what types of 
activities and transactions should raise concerns, what steps should 
be followed when suspicions arise, and the Office of Foreign Assets 
Control and other government lists of suspected terrorists and 
terrorist organizations.
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C. Examination

    The proposed rule includes a provision under which FinCEN would 
delegate examination authority to the CFTC, to enable the CFTC to 
examine CTAs' compliance with the anti-money laundering program 
requirement.

D. Voluntary Filing of Suspicious Activity Reports

    In addition to complying with the requirements of this proposed 
rule, CTAs are encouraged to adopt procedures for voluntarily filing 
Suspicious Activity Reports with FinCEN and for reporting suspected 
terrorist activities to FinCEN using its Financial Institutions Hotline 
(1-866-566-3974). The BSA provides immunity from civil liability for 
any financial institution, its directors, officers, employees, or 
agents that make such a disclosure of any possible violation of law or 
regulation.\27\ The Act clarifies that this safe harbor immunity also 
applies in the case of any voluntary reporting of a suspicious 
transaction or under any contract or other legally enforceable 
agreement, such as an arbitration agreement.
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    \27\ See Lee v. Bankers Trust Co., 166 F.3d 540, 544 (2nd Cir. 
1999) (stating that in enacting 31 U.S.C. 5318(g), Congress 
``broadly and unambiguously provide[d] * * * immunity from any law 
(except the federal Constitution) for any statement made in a 
[suspicious activity report] by anyone connected to a financial 
institution'').
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IV. Request for Comments

    FinCEN requests comment on all aspects of this proposed rule. 
FinCEN specifically requests comment on the definition of ``commodity 
trading advisor'' in proposed rule 103.133(a) and whether this 
definition should include other categories of CTAs, such as any of 
those that are exempt from registration under CFTC rules, or that are 
required to register with the CFTC but do not direct client accounts. 
FinCEN also requests comment regarding the proposed provisions designed 
to avoid imposing overlapping or duplicative anti-money laundering 
program regulations of CTAs and other financial institutions that are 
(or are proposed to be) subject to anti-money laundering program 
requirements.

V. Regulatory Flexibility Act

    It is hereby certified that this proposed rule would not have a 
significant economic impact on a substantial number of small entities. 
The CFTC has stated that it would evaluate within the context of a

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particular proposed rule whether all or some affected CTAs should be 
considered to be small entities and, if so, that it would analyze the 
economic impact on them of any rule.\28\ This proposed rule would 
affect CTAs of all sizes. However, the economic burden should be 
minimal. The costs associated with the development of anti-money 
laundering programs are attributable to the mandates of section 352 of 
the Act. In addition, the proposed rule would not impose significant 
burdens on those CTAs covered by the rule because they are already 
subject to Form 8300 reporting and may build on their existing risk 
management procedures and prudential business practices to ensure 
compliance with this rule. Similarly, the procedures currently in place 
at other financial institutions such as futures commission merchants 
and introducing brokers to comply with existing BSA rules should help 
guide CTAs in establishing their own anti-money laundering programs. 
Finally, CTAs subject to the proposed rule would not be compelled to 
obtain more sophisticated legal or accounting advice than that already 
required to run their businesses.
---------------------------------------------------------------------------

    \28\ 47 FR 18618, 18620 (April 30, 1982).
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    Finally, FinCEN believes that the flexibility incorporated into the 
proposed rule will permit each CTA to tailor its anti-money laundering 
program to fit its own size and needs. In this regard, FinCEN believes 
that expenditures associated with establishing and implementing an 
anti-money laundering program will be commensurate with the size of a 
CTA. If a CTA is small, the burden to comply with the proposed rule 
should be de minimis.

VI. Executive Order 12866

    This proposed rule is not a ``significant regulatory action'' as 
defined in Executive Order 12866. Accordingly, a regulatory assessment 
is not required.

VII. Paperwork Reduction Act

    The collection of information (recordkeeping requirement) contained 
in this proposed rule has been submitted to the Office of Management 
and Budget for review in accordance with the Paperwork Reduction Act of 
1995 (44 U.S.C. 3507(d)). Comments on the collection of information 
should be sent (preferably by fax (202-395-6974)) to Desk Officer for 
the Department of the Treasury, Office of Information and Regulatory 
Affairs, Office of Management and Budget, Paperwork Reduction Project 
(1506), Washington, DC 20503 (or by the Internet to 
[email protected]), with a copy to FinCEN by mail or the Internet at 
the addresses previously specified. Comments on the collection of 
information should be received by July 7, 2003.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information subject to the Paperwork 
Reduction Act unless it displays a valid control number assigned by the 
Office of Management and Budget.
    The collection of information (recordkeeping requirement) in this 
proposed rule is in 31 CFR 103.133(b). The information would be used by 
federal agencies to verify compliance by CTAs with the provisions of 31 
CFR 103.133. The collection of information is mandatory.
    In accordance with the requirements of the Paperwork Reduction Act 
of 1995, 44 U.S.C. 3506(c)(2)(A), and its implementing regulations, 5 
CFR 1320, the following information concerning the collection of 
information as required by 31 CFR 103.133(b) is presented to assist 
those persons wishing to comment on the information collection.
    Description of Recordkeepers: Commodity trading advisors as defined 
in 31 CFR 103.133(a).
    Estimated Number of Recordkeepers: 650.
    Estimated Average Annual Burden Hours Per Recordkeeper: The 
estimated average burden associated with the collection of information 
in this proposed rule is 1 hour per recordkeeper.
    Estimated Total Annual Recordkeeping Burden: 650 hours.
    FinCEN specifically invites comments on the following subjects: (a) 
Whether the proposed collection of information is necessary for the 
proper performance of the mission of FinCEN, including whether the 
information shall have practical utility; (b) the accuracy of FinCEN's 
estimate of the burden of the proposed collection of information; (c) 
ways to enhance the quality, utility, and clarity of the information to 
be collected; (d) ways to minimize the burden of the collection of 
information on commodity trading advisors, including through the use of 
automated collection techniques or other forms of information 
technology; and (e) estimates of capital or start-up costs and costs of 
operation, maintenance, and purchase of services to provide 
information.

List of Subjects in 31 CFR Part 103

    Administrative practice and procedure, Authority delegations 
(Government agencies), Banks and banking, Brokers, Commodity futures, 
Counter money laundering, Counter-terrorism, Currency, Reporting and 
recordkeeping requirements.

Authority and Issuance

    For the reasons set forth in the preamble, part 103 of title 31 of 
the Code of Federal Regulations is proposed to be amended as follows:

PART 103--FINANCIAL RECORDKEEPING AND REPORTING OF CURRENCY AND 
FOREIGN TRANSACTIONS

    1. The authority citation for part 103 is amended to read as 
follows:

    Authority: 12 U.S.C. 1829b and 1951-1959; 31 U.S.C. 5311-5314 
and 5316-5332; title III, secs. 312, 313, 314, 319, 321, 326, 352, 
Pub. L. 107-56, 115 Stat. 307, 12 U.S.C. 1818, 12 U.S.C. 1786(q).

    2. Section 103.56 is amended by redesignating paragraph (b)(8) as 
(b)(9) and revising it, and by adding a new paragraph (b)(8) to read as 
follows:
* * * * *
    (b) * * *
    (8) To the Commodity Futures Trading Commission with respect to 
futures commission merchants, introducing brokers, commodity pool 
operators and commodity trading advisors (as that term is defined in 
Sec.  103.133(a));
    (9) To the Commissioner of Internal Revenue with respect to all 
financial institutions for which examination authority is not otherwise 
delegated pursuant to this paragraph (b).
    3. Subpart I of part 103 is amended by adding new Sec.  103.133 to 
read as follows:


Sec.  103.133  Anti-money laundering programs for commodity trading 
advisors.

    (a) Definitions. For the purposes of this section:
    (1) The term ``commodity trading advisor'' means a person 
registered or required to be registered as a commodity trading advisor 
with the Commodity Futures Trading Commission under the Commodity 
Exchange Act (7 U.S.C. 1 et seq.) and that directs client commodity 
futures or options accounts.
    (2) For purposes of this definition the term ``directs'' refers to 
agreements whereby a person is authorized to cause transactions to be 
effected for a client's commodity futures or options account without 
the client's specific authorization.
    (b) Anti-money laundering program required. Effective [date that is 
90 days after the date of publication of a final rule in the Federal 
Register]:
    (1) Each commodity trading advisor shall develop and implement a 
written

[[Page 23646]]

anti-money laundering program reasonably designed to prevent the 
commodity trading advisor from being used for money laundering or the 
financing of terrorist activities and to achieve and monitor compliance 
with the applicable provisions of the Bank Secrecy Act (31 U.S.C. 5311, 
et seq.) (BSA) and this part. The commodity trading advisor may exclude 
from its anti-money laundering program any pooled investment vehicle it 
advises that is subject to an anti-money laundering program requirement 
under another provision of this subpart.
    (2) Each commodity trading advisor's anti-money laundering program 
must be approved in writing by its board of directors or trustees, or 
if it doesn't have one, by its sole proprietor, general partner, or 
other persons who have similar functions. A commodity trading advisor 
shall make its anti-money laundering program available for inspection 
by FinCEN or the Commodity Futures Trading Commission upon request.
    (c) The anti-money laundering program shall, at a minimum:
    (1) Establish and implement policies, procedures, and internal 
controls reasonably designed to prevent the commodity trading advisor 
from being used for money laundering or the financing of terrorist 
activities and to achieve and monitor compliance with the applicable 
provisions of the BSA and this part;
    (2) Provide for independent testing for compliance to be conducted 
by the commodity trading advisor's personnel or by a qualified outside 
party;
    (3) Designate a person or persons responsible for implementing and 
monitoring the operations and internal controls of the program; and
    (4) Provide ongoing training for appropriate persons.

    Dated: April 28, 2003.
James F. Sloan,
Director, Financial Crimes Enforcement Network.
[FR Doc. 03-10841 Filed 5-2-03; 8:45 am]
BILLING CODE 4810-02-P